See what our guest columnist, Mr. Backoffice, has to say about your relationship with your donors and the IRS ...
If you give $1.00 to a charity, how much of it will go to the cause? Typically 15-20 cents go to overhead. Most folks would be okay with knowing that 80 cents of their buck goes to the cause, yes. If you use a professional fundraiser, it's possible that instead of 80/20, it might be 20/80.
Before you tell the public how much of their donation will be allocated you have to know at least one thing: How much does your fundraising cost?
Of course the government has something to say about it. In its “Statement of Position on Accounting for Costs of Activities of Not-for-Profit Organizations…that include Fund-raising”. For accounting geeks, it’s known as “SOP-98-2” and has been effective since December 15, 1998 and applies to all fundraising activities of NPO's and to state and local government entities.
Although most nonprofit managers haven't heard of it, we've
been subject to this rule for over ten years.
"Accountability" "Misleading the Public" "How much of your donation goes to the cause".
These topics have received much media play. If professional fundraisers use full disclosure to the donor they might even be within the confines of the law (this layman’s speculative opinion). But who would want to give 20 cents out of every dollar to a cause?
The answer: maybe your nonprofit! Nonprofits are experts at disguising the real costs of fundraising as "general administrative". The blur between job duties opens that door. In a small nonprofit, everybody might be pulling double-duty.
If we consider the real cost, maybe professional fundraisers are just more honest. Maybe the idea of sitting back, doing no work whatsoever and picking up a check from the professional guys doesn’t sound half bad. No midnight hours blowing up balloons, no silent auction gifts which rarely pull the kind of bids they deserve, no more print "ad books" that may or may not even pay the cost of the printer.
Then there is the self-deception that comes afterwards. How many times have I heard "Our fundraiser is so incredibly successful, we raised $1 million dollars!" only to find out that they were talking gross, not net! How much did you spend on the event? I ask. On hearing the answer, I might glance at the figures and comment ‘Oh, so you really raised $200,000’ … that can be deflating.
How does all this connect to SOP 98-2? Bottom line, 98-2 is an attempt to clarify how a nonprofit should (must) handle the overlap of fundraising costs with education or administrative costs.
Accountants call this overlap a "Joint Activity". SOP 98-2 requires that allocation methods be rational and systematic; that they result in reasonable allocations and be applied consistently by NPO's given similar facts and circumstances.
The answer: maybe your nonprofit! Nonprofits are experts at disguising the real costs of fundraising as "general administrative". The blur between job duties opens that door. In a small nonprofit, everybody might be pulling double-duty.
If we consider the real cost, maybe professional fundraisers are just more honest. Maybe the idea of sitting back, doing no work whatsoever and picking up a check from the professional guys doesn’t sound half bad. No midnight hours blowing up balloons, no silent auction gifts which rarely pull the kind of bids they deserve, no more print "ad books" that may or may not even pay the cost of the printer.
Then there is the self-deception that comes afterwards. How many times have I heard "Our fundraiser is so incredibly successful, we raised $1 million dollars!" only to find out that they were talking gross, not net! How much did you spend on the event? I ask. On hearing the answer, I might glance at the figures and comment ‘Oh, so you really raised $200,000’ … that can be deflating.
How does all this connect to SOP 98-2? Bottom line, 98-2 is an attempt to clarify how a nonprofit should (must) handle the overlap of fundraising costs with education or administrative costs.
Accountants call this overlap a "Joint Activity". SOP 98-2 requires that allocation methods be rational and systematic; that they result in reasonable allocations and be applied consistently by NPO's given similar facts and circumstances.
When your nonprofit makes a solicitation (for example sends a newsletter out with a return envelope for potential donors) that activity is referred to as a “joint activity”. The criteria: purpose, audience and content. If the activity does not meet all three criteria SOP 98-2 requires the nonprofit to report any costs of a joint activity as fundraising.
Do you do Direct Mailings? If so, you may be mixing the purposes of fundraising or program info and if you aren’t careful, you might find yourself needing to allocate the entire cost to fundraising. If you can’t prove your mailing has educational content, you may have to allocate 100% to fundraising.
Do you do Direct Mailings? If so, you may be mixing the purposes of fundraising or program info and if you aren’t careful, you might find yourself needing to allocate the entire cost to fundraising. If you can’t prove your mailing has educational content, you may have to allocate 100% to fundraising.
Unfortunately SOP 98-2 provides no detailed guidance on how allocations should be calculated or which methods should be used. In the end, much is left up to us, to interpret; report transparently and allocate -- using reasonable and consistent methods. At the end of the day, If we want to know (and make public to our donors) how much of their hard-earned money goes to “the cause” we will need more than SOP 98-2, we’ll need to be honest with ourselves.
-- Posted May 21, 2011 by Mr. Backoffice.
